Correspondent Banking Forum Regulatory Themes

Transcription

1 Treasury and Trade Solutions April 10 th, 2015 Correspondent Banking Forum Regulatory Themes Carolina Caballero Global Clearing Risk and Regulatory Strategy Head

2 Table of Contents 1. Section 1073 of the Dodd-Frank Act Key Considerations for Non-US Banks 33

3 Intraday Liquidity Management New Basel Spotlight Basel Liquidity Risk Management Framework 1 Liquidity Coverage Ratio (LCR) Net Stable Funding Ratio (NSFR) Monitoring Tool for Intraday Liquidity Mgmt 30 day funding ratio Banks required to hold high-liquid assets amounts equal to or greater than their net cash over a 30 day period Intraday cash and collateral sufficient to survive net cash outflows caused by crisis events Deadline: 2015 End of Day Relationship between bank s settlement obligations (longer term) and funding Requires stable funding available amount to exceed required amount over a one-year period of extended stress Assesses value of all asset types held Deadline: 2018 Set of monitoring tools intended for reporting banks intraday liquidity risk in normal and stress conditions Enable banking supervisors to monitor banks intraday liquidity risk and its ability to meet payment and settlement obligations on a timely basis Deadline: 2015 (Coincide with LCR) 1 Principles for Sound Liquidity Risk Management and Supervision. 1

4 Basel Monitoring Indicators How We Got Here September 2008 Lehman Brothers filed for Chapter 11 bankruptcy September 2008 Basel Committee on Banking Supervision (BCBS) published: Principles for Sound Liquidity Management and Supervision Principle 8: A bank should actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions and thus contribute to the smooth functioning of payment and settlement systems July 2012 BCBS released a consultation paper on Monitoring Indicators for Intraday Liquidity Management April 2013 Monitoring tools for intraday liquidity management published January 2015 Implementation date beginning in certain jurisdictions 2

5 Intraday Liquidity Monitoring Objectives Significance of New Rules Key objectives are Promote further sound intraday liquidity management and complement the qualitative guidance of the Sound Principles to ensure that a bank can meet payment and settlement obligations on a timely basis under both normal and stressed conditions Enable banking supervisors to monitor Internationally active banks intraday liquidity risk and their ability to meet payment and settlement obligations on a timely basis under both normal and stressed conditions Intraday liquidity should lead to closer co-operation between banking supervisors and the overseers in the monitoring of banks payment behaviour Promotion of sound liquidity management practices for domestic banks. Prescriptive application of the tools will be at discretion of national supervisors 3

6 The Monitoring Tools All Banks Correspondent Bank Service Providers Direct Participants 1) Daily max intraday liquidity usage (Largest net negative position) 2) Available intraday liquidity at the start of the day 3) Total payments 4) Time Critical Obligations 5) Value of payments made on behalf of correspondent banking customers 6) Intraday credit extended to correspondent banking customers 7) Intraday throughput daily average across a bank s settlement account with an average hourly view reported as a percentage of overall payments Provide dimension on banks payments activity and intraday liquidity usage and availability in normal times Assess concentration in Bank s correspondent activity and extent of exposure on intraday credit lines Establish trend on Bank s average payment settlement to identify any changes that might occur Stress Scenarios (Guidance) Own Financial Stress: A bank suffers or is perceived from suffering from a stress event Counterparty Stress: Major Counterparty A Customer Bank s stress Correspondent Bank Market-wide credit or liquidity stress 4

7 Intraday Liquidity Reporting Challenges While efforts to promote sound intraday liquidity practices across the industry should be welcomed, there remain implementing challenges. Focus is on monitoring as opposed to controls with significant opportunity cost to creating required reporting infrastructure Data is backward looking and may not be timely in identifying stress points. Uncertainty remains as to how data will be applied by relevant supervisors Level of transactional detail required to facilitate reporting is more significant than other Basel liquidity requirements. Data collation efforts are very significant Visibility in correspondent banking space is an issue Internationally active banks need to tackle reporting requirements across currency, multiple clearing system and correspondent relationships (often for same currency) and across home and host regulators based on legal entity structure Risk of certain banks gaming the system exists by delaying payments to improve intraday liquidity positions 5

8 Intraday Liquidity Changing Landscape There are numerous factors outside of Basel Monitoring Tools that are changing the landscape and increasing focus on Intraday Liquidity. Dodd Frank and EMIR continue to mitigate counterparty and settlement risk on OTC derivatives by pushing settlement into clearing system but these time payments place additional strain on intraday liquidity Regulators are placing restrictions around co-mingling of collateral pools across different legal entities. Economies of scale are therefore lost and collateral becomes more expensive General pressure on banks net income lines are triggering banks to review collateral cost where there are massive differences across the industry in terms of efficiency management and potentially significant savings Momentum in discussions around intraday liquidity is causing Banks to re-think their internal transfer pricing policy where charge was not previously not passed back to the business Emerging currencies can often initially have heightened intraday liquidity constraints that need to be carefully managed 6

9 Client Intraday Analysis: Practical Examples 6 AM 7 AM 8 AM 9 AM 10 AM 11 AM 12 PM 1 PM 2 PM 3 PM 4 PM 5 PM 6 PM 6 AM 7 AM 8 AM 9 AM 10 AM 11 AM 12 PM 1 PM 2 PM 3 PM 4 PM 5 PM 6 PM Client A End of Day (EOD) Balance on Par with SOD Client B $2bn Peak $750mn Starting Balance Closely Aligned Payment Flows ($800mn) Net Account Balance Inflows Outflows Net Balance Liquidity Required for Outgoing Payments Payment flows are consistent and closely aligned throughout most of the day Account balance is large enough to cover spikes in the day Client ends the day with a positive account balance on par with the Start of Day (SOD) balance No additional collateral pledging required with Real Time Gross Settlement (RTGS) system Payment flows are inconsistent and misaligned over the day Early inflows provide a positive balance but subsequent outflows and spikes require liquidity utilization Client ends the day with a zero or positive balance Additional collateral pledging required with the RTGS system due to large peak usage 7

10 Implications for the Banking Industry Banks looking to mitigate risk through active liquidity management Re-thinking Intraday Liquidity Catalysts to break down Business units silos and apply end to end Business Management principles to Intraday Liquidity Optimize workflows and matching incoming and outgoing flows at a more granular and business level. Become more efficient and rethink FIFO approach Developing Monitoring Tools Challenges to Develop In-house: Tech spend, resource availability, data and reporting complexity and deadline (January 2015) Certain Correspondent Banks developing tools to meet reporting requirements and provide reporting capabilities to clients Technology Vendors also developing monitoring dashboards Assess underlying costs and risk for intraday funding Pricing Liquidity Focus on transfer charges (within entity) and pledging costs Reassess payments mandates considering Transaction processing requirements (e.g. urgency) Flow volume impact on intraday 8

11 Where is Citi in terms of Intraday Liquidity Requirements? Investing in development of Intraday Liquidity Monitoring tools external version launched in January 2015 Monitoring capabilities available in USD, EUR, GBP and CHF Provide regulatory reporting capabilities to FI clients per BASEL requirements Continuing discussions with regulators to gain insight on interpretation of BASEL III guidance Working with Industry Groups to raise awareness on complexity of new requirements with Central Banks In regards to Citi s own intraday liquidity capabilities in 2015 Citi looks to Develop reporting requirements per Fed, PRA and ECB guidance to address 2013 BCBS Intraday Liquidity Monitoring requirements Increase current feed capabilities for greater footprint Decrease update times to increase real time monitoring capability on management dashboards thereby increasing efficiency 9

12 Citi Intraday Liquidity Monitoring: Main Dashboard 5 Main Functionality Key Benefits Currency and Legal Entity selection Get detailed transparency into Intraday Liquidity by Currency and Legal Entity level 2 Historical Average Benchmark selection Utilize Historical Average Benchmark to compare positions intraday 3 3 Maximum and minimum liquidity peaks Analyze peaks and root cause by drilling into transactional data 4 4 Intraday Liquidity by Legal Entity and Account structure Effectively manage Intraday Liquidity across structure 4 5 Daily historical information (up to 6 months) View chosen day s entire activity details 10

13 Citi Intraday Liquidity Monitoring: Legal Entity Drill Downs Main Functionality Key Benefits 1 1 Time Interval selection Get details into specific time period Payment metric selection Establish liquidity usage patterns from different metrics 3 Transactional and counterparty activity per account Get granular details on an account basis 11

14 Citi Intraday Liquidity Monitoring: Counterparty Details 1 1 Main Functionality Key Benefits 2 Time Interval Selection Hone into the critical time periods of your business 3 2 Inflows / outflows by counterparty Understand concentration risk with counterparties 3 Counterparty Data: Amount Volume Historical Average Benchmark Drill down into counterparty transactional details and benchmark against previous periods 12

15 This Presentation Does Not Constitute Tax Advice. It is for Information Purposes Only 13

16 FATCA Background Top Line Summary The Foreign Account Tax Compliance Act (FATCA) 1 is US tax legislation that aims to prevent or detect tax evasion by US Persons who Hold bank deposits and/or securities in offshore accounts, or Own foreign investment entities (e.g. personal investment corporations and trusts) FATCA was enacted into law on March 18, 2010 as part of the HIRE ACT and added new Chapter 4 to the Internal Revenue Code Basic Requirements US financial institutions (USFIs) and foreign financial institutions (FFIs) will be required to Identify and report directly or indirectly to the IRS with respect to i. Accounts owned directly or indirectly by specified US persons, and ii. Financial institutions that do not comply (or participate ) with FATCA (so-called non-participating FFIs ) Withhold a 30% FATCA tax from certain US source income when paid to i. Non-participating FFIs (NPFFIs), and ii. If the withholding agent is an FFI, recalcitrant accounts 1 What? The purpose of FATCA is to detect, deter and discourage offshore tax evasion by US citizens or residents Why? Create greater transparency by strengthening information reporting and compliance with respect to US offshore accounts with the cooperation of Foreign Financial Institutions ( FFIs ) How? FATCA reporting to the IRS to disclose certain information on US account holders. FATCA imposes a 30 percent withholding tax on any withholdable payment or passthru payment made by an FFI to a recalcitrant account holder or a non-participating FFI (i.e. entities or holders that have not agreed to provide the requested information to the IRS) 14

17 FATCA Impact to Citi and Our FI Clients FATCA has a specific focus on depository accounts, regardless of whether interest is earned on that account The most significant change with FATCA is that effective July 1, 2014, interest on deposits maintained at a non-us, branch of a US bank (e.g. the London branch of Citibank N.A.) is considered US source income subject to a 30 percent withholding tax, unless an exemption applies FATCA requires reporting of year end balances in deposit accounts held by specified US persons Generally, TTS Cash requires that a valid IRS Form W-8 be provided as a condition for the opening of a new depository account for a non-us entity in any Citi Branch or Subsidiary FATCA requires the collection of tax documentation, but does not specifically call for a US Tax Form. However, for purposes of a consistent and controlled process globally, we are asking clients to submit US Tax Forms as part of the account opening process The impact of non-compliance is severe Should Citi not comply with the regulation, Citi could be found as non-compliant under FATCA, lose our Global Intermediary Identification Numbers, and may be subject to tax withholding on earned interest Should clients not provide necessary documentation to their Financial Instruction providers, clients may be subject to tax withholding on earned interest 15

18 Withholding as an Enforcement Tool 30 Percent FATCA Withholding Imposed on withhold-able payments, including US source income from securities Interest on bank deposit accounts maintained in the US or in a foreign branch of a US bank Gross proceeds from the sale/redemption of US securities (not until 2017) When made to foreign financial institutions (FFIs) or Non-compliant passive non-financial foreign entities (NFFEs) unless The FFI qualifies as a participating FFI, a registered deemed-compliant FFI, a certified deemed-compliant FFI or an exempt beneficial owner The NFFE certifies that it has no substantial US owners, certifies that it has substantial US owners and discloses their identity, or is classified as an excepted NFFE (excepted from the ownership certifications because it presents a low risk of being used for tax evasion) 16

19 Example: Impact if a Bank Does Not Comply with FATCA Interest Income paid after 2014 to a new account $100 Colombian Bank (FFI) Gross Sales Proceeds paid after 2016 $2000 ATCA Withholding tax $30 US Treasury Securities FATCA Withholding tax $600 Colombian Bank invests in US Treasury securities that generate US source interest income and eventually gross proceeds from sale If Bank is a NPFFI a new 30% FATCA withholding tax will apply to periodic payments of interest income, and if the bonds are sold after 2016, gross sale proceeds 17

20 What is an FFI? The term foreign financial institution includes investment entities and certain holding companies as well as traditional financial institutions Any non-us entity that falls into one of the following categories Depositary banks Custodial banks or brokerage firms Insurance companies that issue policies having cash value or annuities Investment Entities, including Entities that conduct the following activities as a business on behalf of customers Trading in financial assets Portfolio management Investing, administering, or managing money or financial assets Collective investment vehicles, mutual funds, hedge funds, and private equity funds Holding company or treasury center that Is part of an expanded affiliated group (EAG) that includes another FFI Is formed in connection with or availed of by certain investment entities 18

21 What is Expected of an FFI? To avoid 30 percent withholding under FATCA, a FFI must enter into agreement with IRS and meet the following obligations Comply with verification and due diligence procedures for payees and financial accounts Obtain information necessary to determine if each account is a US account File annual reports with the IRS on US accounts Withhold and pay the IRS 30 percent of withhold-able payments made to Recalcitrant account holders, Non-compliant FFIs, and FFIs electing to be withheld upon Comply with IRS requests for additional information on US accounts Obtain a waiver of foreign laws that would prevent reporting or disclosure (e.g. privacy or bank secrecy laws) of US persons or close any US account failing to provide a required waiver The IRS can terminate the FFI agreement for any performance failures All FFIs in expanded affiliated group need to be compliant in order for any FFI in that expanded affiliated group to be compliant 19

22 IRS Registration of FFIs FFIs are required to register as Participating FFIs, Registered deemed-compliant FFIs or Limited FFIs Every FFI that is a member of an expanded affiliated group (EAG) must register with the IRS, unless an exception applies A Limited FFI is an NPFFI that is a member of an EAG and is subject to FATCA withholding Once an FFI has registered, the IRS will approve its registration and issue a GIIN (Global Intermediary Identification Number) to each Participating FFI and Registered deemed compliant FFI The IRS registration web site will be primary means for FFIs to complete and maintain their FATCA registrations, renew QI agreements and make periodic compliance certifications The web site will be used for ongoing electronic communication between the IRS and FFIs A GIIN will be used as an identifying number in satisfying the FFI s reporting obligations and identifying its status to a withholding agent The IRS will electronically post the first IRS list of Participating FFIs and registered deemed compliant FFIs (including Model 1 FFIs) on June 2, 2014, and will update the list on a monthly basis 20

23 Key FATCA Due Dates Near Term Requirements FATCA Compliance Tasks USFI FFI Due Dates 1 Comments Finalize FFI Registration 5/5/2014 For inclusion in first IRS list of FFIs to be released on June 2, 2014 FFI Agreements Effective 6/30/2014 Or later date the FFI enters into an FFI agreement. Grandfathered Obligations (those that produce/could produce US source income) New Account Due Diligence procedures in place 7/1/2014 or 1/1/2015 Withhold on US Source FDAP Income 7/1/2014 6/30/2014 Identify outstanding obligations 7/1/2014 Begin monitoring material modifications Applies to accounts opened by individuals after June 30, 2014 and entities after December 31, 2014 Begin withholding on new individual accounts and certain pre-existing accounts for NPFFI 2 Future Requirements FATCA Compliance Tasks USFI FFI Due Dates 1 Comments Due Diligence on prima facie FFIs among preexisting entity accounts 4 12/31/2014 Documentation due date 1/1/2015 Begin withholding on NPFFIs 2 Form 1042-S Reporting 3/15/2015 Applies to withholdable payments US Account Reporting 3 3/15/2015 First reporting year for Form 8966 is 2014 Due Diligence on high-value accounts among preexisting individual accounts Limited FFI Status (Impacts EAG compliance) Ends 12/31/2015 Due Diligence on all remaining preexisting accounts (other individual accounts held by USFIs) 6/30/2015 Documentation Due Date 7/1/2015 Begin withholding unless documented or excepted 5 6/30/2016 Documentation due date 7/1/2016 Withhold on Gross Proceeds 1/1/2017 Withhold on Foreign Passthru Payments 1/1/2017 Begin withholding unless documented as exempt or an exception applies Begin withholding on sales/redemptions unless documented as exempt or an exception applies Or if later, the date final regulations defining covered payments are published 1. Note: These dates are based on Notice and the final FATCA Regulations and as further amended by Announcement and Notice Once a preexisting account is documented, it will be treated as having the FATCA status that is claimed from the time it is documented rather than starting at the end of the due diligence period. For preexisting entity accounts documented as NPFFIs, withholding must begin even if the due diligence period has not ended. 3. US account reporting for USFIs is limited to reporting on Substantial US Owners of Passive NFFEs and Specified US Owners and Debt Holders of an Owner Documented FFI. 4. FFIs located in an IGA country are not required to perform due diligence to identify prima facie FFIs by January 1, FFIs located in an IGA country are not required to withhold on recalcitrant accounts. 21

24 New Account Due Diligence Unless documentation sufficient to determine the FATCA status of the payee or account holder is provided to the withholding agent, an entity will be presumed to be an NPFFI and subject to FATCA withholding Applies to new accounts opened or obligations entered into after December 31, 2014 This presumption is rebutted by providing documentation sufficient to establish that the payee or account holder is FATCA compliant Key Differences between FATCA and prior law FATCA requires increased due diligence on the claims made A withholding agent must treat the claim as invalid, if any information contained in the account opening file or other client files conflicts with the payee s claimed FATCA status This includes a review of information or documentation collected in the performance of due diligence under Anti-money laundering ( AML ) and Know-your-customer ( KYC ) rules A claim of foreign status will be treated as unreliable if there are certain types of US indicia present, unless additional documentation sufficient to cure the US indicia is obtained This means that clients having US indicia will be required to provide additional documentation to substantiate a claim of foreign status 22

25 How to Classify Accounts Under FATCA FIs need to determine whether to treat An individual account holder as a US person or a foreign person An entity account holder as A US person A foreign financial institution (FFI) An exempt foreign organization (e.g. a foreign government) or A non-financial foreign entity (NFFE) An FFI as A participating FFI A deemed-compliant FFI An exempt beneficial owner, or Non-participating FFI An NFFE as An excepted NFFE or A passive NFFE (having a substantial US owner) Presents a new and completely different way to categorize client accounts and service providers 23

26 Definition of a US Person A Specified US person is any US person OTHER THAN A publicly traded corporation or member of its expanded affiliated group Organization exempt from tax under Section 501(a) or an individual retirement plan The US, the District of Columbia, any state, any US territory, any political subdivision the foregoing, or any wholly-owned agency or instrumentality thereof Banks; REITS; RICs Common trust fund or trust exempt from tax A US registered dealer in securities, commodities or derivatives; or A broker Above list is similar to list of exempt recipients used to identify persons exempt from Form 1099 reporting, except that certain private corporations are specified US persons 24

27 Impact on Your Relationship with Your Bank What Your Financial Institution Will Ask you What is your FATCA status? A multi-national corporation must determine the FATCA status for each entity in its expanded affiliated group Establish FATCA status by providing appropriate documentation, which may include US Legal Entities Form W-9 Non-US Legal Entities Form W-8 Request for additional documentation if US indicia are present Failure to provide appropriate documentation will result in 30% FATCA withholding and reporting You are obligated to inform your bank of any change in circumstances that affects your FATCA status within 30 days of the change Impact on Transactional Documentation May need to update Legal Documents 25

28 FATCA Intergovernmental Agreements (IGAs) An IGA establishes a partnership between the US and a foreign country To improve international tax compliance To establish uniform reporting standards and an automatic information exchange To eliminate local legal obstacles to FATCA compliance, and To implement FATCA in a manner that will reduce compliance burdens and costs IGAs modify the FATCA compliance obligations of financial institutions located in the IGA country from that otherwise required by the US Treasury Regulations There are two primary types of IGAs: Model 1 and Model 2 Both models suspend the requirement to withhold on or close recalcitrant accounts, provided that the information reporting requirements are met Under Model 1, FATCA information returns are to be filed with local tax authorities while under Model 2, these returns are to be filed directly with the IRS Allow reliance on self-certifications (IRS form or similar agreed upon form), but leave the actual mechanics up to the individual Financial Institutions 26

29 IGA Status Update As of April 2015, 57 countries have signed an IGA, almost double the number of countries with an agreement in place in mid are Model 1 IGAs Seven are Model 2 IGAs Model 1 bilateral agreement published in July 2012 and Model II published in November additional countries have reached an agreement in substance, a 33% increase since mid are Model IGAs and 6 are Model 2 IGAs On April 2, 2014, Treasury and IRS announced that it would treat IGAs as in effect in countries that have reached an agreement in substance on the terms of an IGA Provides FFIs in those countries with clarity on their FATCA status when they register with the IRS and what they need to do to implement FATCA Until the country specific IGA is signed, the terms of the model agreement apply A country will be removed from this list if the IGA is not signed by December 31, 2014 Updates to the lists of IGAs in effect are posted to the Treasury web site periodically at The text of the model agreements can be found at 27

30 Information Reporting by FATCA Partner FIs Report US account holders who are Specified US persons Non-US entities having at least 1 controlling person that is a specified US person A specified US person is generally means any US person other than an exempt recipient (but includes a privately held corporation that is not a related entity) Reportable information Name, address and TIN of each specified US person Name, address and TIN (if any) of a non-us entity with at controlling specified US person Account number Account balance or value at year end or account closing date Total gross interest, dividends, other income, gross proceeds from sale or redemption of property paid or credited to the account Form 8966 will be used by FFIs in reporting on US accounts Unless an election is made to report on Form 1099 FATCA Partners in Model 2 countries must report annually the aggregate information required respecting US accounts that do not consent to reporting 28

31 Dodd-Frank 1073 Disclaimer The intent and goal of this presentation is to provide our customers with helpful information on the 2013 Final Rule amending Regulation E, implementing Section 1073 of the Dodd-Frank Wall Street and Consumer Protection Act as published by the Consumer Financial Protection Bureau ( CFPB ) on April 30, 2013 (the 2013 Final Rule ). There are many parties involved in providing cross border remittance services and these rules affect different parties differently In order to determine how the 2013 Final Rule will affect your organization and what will be required in order to comply, please consult your respective legal counsel Material in this presentation is for reference purposes only and does not constitute legal, accounting, investment, tax, or any other professional advice 29

32 1. Section 1073 of the Dodd-Frank Act

33 Background The Remittance Transfer Final Rule amends Regulation E, subpart B, implementing Section 1073 of the Dodd-Frank Wall Street and Consumer Protection Act. The Remittance Transfer Final Rule, as issued by the Consumer Financial Protection Bureau (CFPB) on April 30, 2013, took effect on October 28, 2013 The Remittance Transfer Rule was originally published on January 20, 2012 with an effective date of February 7, 2013 In December 2012, the CFPB proposed new language to the Remittance Transfer Final Rule and delayed its effective date The revised Remittance Transfer Final Rule (the 2013 Final Rule ) was formally amended and reissued in April 2013 Prior to the adoption of the Final Rule, consumer remittance transfers had a more modest degree of coverage under Federal consumer protection regulations The 2013 Final Rule implemented new protections for consumers transferring funds electronically outside the US The rule requires consistent, reliable disclosures about the price, the amount of currency to be delivered to a designated recipient, the exchange rate if applicable, and the date funds will be available Consumers must receive pricing information before payment Consumers are granted 30 minutes to cancel after payment is authorized 30 Section 1073 of the Dodd-Frank Act

34 Dodd-Frank Section 1073 Summary Section 1073 of the Dodd-Frank Act significantly increases the mandatory disclosure requirements and therefore the risk associated with providing consumer-initiated cross border remittances. What it is Scope The Remittance Transfer Final Rule implementing the requirements under Section 1073 of the Dodd-Frank Act introduces, amongst others, new protections for consumers transferring funds electronically outside the United States, requiring consistent and reliable disclosures about the fees involved, the amount of the currency to be delivered to a designated recipient, FX rate (if applicable), and the date funds will be available all of which must be provided prior to making the payment Remittance Transfers: electronic transfer of funds initiated by an individual and sent by a remittance transfer provider (RTP) to any person (including business) in a foreign (non-us) country RTP: Any person that provides remittance transfers for a consumer in the normal course of business 1, regardless of whether the consumer holds an account with such person Small value transfers of $15 or less Exclusions Purchases and sales of securities or commodities Paper-based transactions Disclosures must be provided at time of request and prior to payment Disclosure Requirements A temporary exception is available to insured deposit taking institutions permitting a reasonably accurate estimate in lieu of disclosure of the exact amount Expires July 2015 Possible extension to July The CFPB has granted a safe harbor to RTPs transacting less than 100 cross-border consumer remittances annually. 31 Section 1073 of the Dodd-Frank Act

35 Disclosure Challenges Disclosure requirements impose various challenges on the remitting banks, requiring accurate and timely information from their intermediaries and even from beneficiary banks in some cases. US Bank USD USD / LCY USD / LCY Beneficiary Bank Disclosure Intermediary of Remitting Bank Intermediary of Bene Bank Currency of Bene Acct Unknown Unknown Unknown Known to Bene Bank Exchange Rate Known if FX Done Unknown by the Bank or if FX Done Further its IBK Down Payment Chain Known if FX done Unknown by IBK if FX done Further down Payment Chain Known if FX Done Unknown by IBK if FX Done Further Down Payment Chain Known to Bene Bank Other Fees 1 Fees Taken by Bene Bank and its Correspondent are Not Visible Fees Taken by Bene Bank and its Correspondent are Not Visible Fees Taken by Bene Bank May or May Not be Visible Known to Bene Bank Other Taxes 2 Unknown Unknown Unknown Known to Bene Bank Amount Received Unknown Unknown Unknown Known to Bene Bank 1. Disclosure of certain Other Fees is optional. 2. Disclosure of Other Taxes is optional. Unknown Potentially Known Known 32 Section 1073 of the Dodd-Frank Act

36 2. Key Considerations for Non-US Banks

37 Dodd-Frank 1073 Implications to Non-US Banks (1 of 3) Impact on non-us Bank as a beneficiary bank receiving consumer payments initiated from a US-based account. If a non-us bank is simply a beneficiary bank that may receive Dodd-Frank 1073 wires, it is likely to be approached by a number of institutions for information about their charging practices This information will be used to provide the required disclosure of bank chain fees to senders of cross-border wires in the US Providing such information is not required from a regulatory perspective but would be helpful to the inquiring institutions Such inquiries may come directly from banks in the US as well as indirectly from foreign banks providing nostro services to US-based remitting institutions Increased number and scope of investigations 33 Key Considerations for Non-US Banks

38 Dodd-Frank 1073 Implications to Non-US Banks (2 of 3) Impact on non-us Bank as a nostro provides to a US-based remitting institution. The US-based remitting institutions may process Dodd-Frank 1073 transactions not only from their USD accounts, but also directly from their foreign currency nostros Example A customer of Bank A in the US requests a wire of GBP10,000 to a beneficiary holding an account with Bank B in GB Bank A debits customer s account for USD15,000 and sends SWIFT MT103 to Bank C (its GBP nostro provider) instructing a wire of GBP10,000 to a beneficiary holding acct with Bank B If a non-us bank provides local currency nostro services to US-regulated institutions, it may also be approached by such institutions for information about their charging practices While providing such information is not required from a regulatory perspective, the bank s nostro clients will be subject to the new regulation and the nostro provider s supportiveness in this context is likely to have relationship implications Additionally, US-based nostro holders may ask the non-us nostro providers for a full suit of tools and services to enable them to process consumer-initiated wires in compliance with Dodd-Frank Section Such requests may require the ability to reliably provide Local fees Potential tools to avoid fees (e.g. guaranteed OUR ) Timing of funds availability to ultimate beneficiaries Support with investigations and error resolutions Updated contracts 34 Key Considerations for Non-US Banks

39 Dodd-Frank 1073 Implications to Non-US Banks (3 of 3) Industry Standards. In order to support global recognition of wires subject to the new Dodd-Frank Section 1073 regulation a number of communication/messaging standards are being introduced Fedwire (field 6500)/CHIPS (field 650) /CTO/ DF1073 code word for charge code OUR payments /CTS/ DF1073 code word for charge code SHA payments /CTB/ DF1073 code word for charge code BEN payments SWIFT CCT in 26T (to be confirmed) 35 Key Considerations for Non-US Banks

40 Thank you 36 Key Considerations for Non-US Banks

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Highlights of Citi's unique role in promoting sustainability include: (a) releasing in 2007 a Climate Change Position Statement, the first US financial institution to do so; (b) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of renewable energy, clean technology, and other carbon-emission reduction activities; (c) committing to an absolute reduction in GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (d) purchasing more than 234,000 MWh of carbon neutral power for our operations over the last three years; (e) establishing in 2008 the Carbon Principles; a framework for banks and their U.S. power clients to evaluate and address carbon risks in the financing of electric power projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions. Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks. efficiency, renewable energy and mitigation

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